Introduction to Accounting Flashcards
What are the 3 types of profit making businesses?
Sole Traders, Partnerships and Limited Liability Companies.
What is a sole trader?
A business owned by 1 person such as a plumber or and electrician.
What is a partnership?
A business owned by 2 or more people (a group of sole traders) such as a small solicitors or accounting firm.
What is a limited liability company?
A business owned by shareholders that is registered with Companies House. This business is a separate legal identity to its shareholders.
What type of liability do the 3 types of businesses have?
Unlimited:
Sole Traders
Partnership
Limited:
Limited Liability Companies
Who are the 7 users of financial information?
Investors Employees Lenders Government Customers Suppliers Public
Why are investors interested in a business’s financial information?
To see whether a profit is being made to gain a return on investment.
Why are employees interested in a business’s financial information?
To see whether the business will be able to pay their wages or salaries (job security).
Why are lenders interested in a business’s financial information?
To see whether the business will be able to pay back any loans.
Why is the government interested in a business’s financial information?
To see whether the correct amount of taxes are being paid.
Why are customers interested in a business’s financial information?
To see whether the business will continue to operate so that they can still buy their products or use their services (going concern).
Why are suppliers interested in a business’s financial information?
To see whether the business will be able to continue to keep purchasing supplies off them (going concern).
Why are the public interested in a business’s financial information?
To see whether the business is showing corporate social responsibility. Also the public could be any of the other stakeholders.
What is the Statement of Financial Position?
This is also known as the balance sheet. This is a list of all assets controlled and the liabilities owed by a business at a given date and the level of equity or owners capital.
What is a Non-Current Asset and where is it found?
An asset that will be used for more than a year.
At the top of the Statement of Financial Position.
What is a Current Asset and where is it found?
An asset that will be held for less than a year.
Under Non-Current Assets on the Statement of Financial Position.
What is the order that Current Assets should go in?
In order of increasing liquidity.
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Stock, Debtors, Bank, Cash.
What is Capital and where is it found?
Amount the business owes to the owner.
Under Current Assets on the Statement of Financial Position.
What is minused from Capital on the Statement of Financial Position.
Drawings.
What is a Non-Current Liability and where is it found?
Money that is owed for longer than a year.
Under Capital on the Statement of Financial Position.
What is a Current Liability and where is it found?
Money that is owed but will be paid off in less than a year.
What is the accounting equation?
Total Assets = Capital + Total Liabilities
What is the Statement of Profit and Loss?
Also known as the Profit and Loss Account. It is a record of income recognised and expenditure incurred over a given period. It shows whether a profit or a loss was made.
What goes in the sales section of the Statement of Profit and Loss?
Sales, (Return Inwards), Opening Stock, Purchases, Carriage Inwards, (Returns Outwards), (Closing Stock).
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How do you calculate Gross Profit?
Gross Profit = Net Sales - Cost of Sales
What is sundry income and where is it found?
Also known as additional income for example someone paying the business rent for subletting part of a property.
Found under gross profit and is added to it.
How do you calculate the profit or loss for the year?
Profit or Loss for the Year = (Gross Profit + Sundry Income) - Expenses
What is the Business Entity Concept?
A business is considered to be a separate entity to its owner so the personal transactions of the owner can not get mixed with the business transactions.
